The Economics Of European Integration 3rd Edition Richard E. Baldwin, Charles Wyplosz - Solutions

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From the information in Exhibit 7, which of the following points on the production possibilities curve are attainable with the resources and technology currently available?a. A, B, C, E, Ub. A, B, C, D, Wc. E, U, Wd. B, C, D, Ue. A, B, C, E
A nation can accelerate its economic growth bya. reducing the number of immigrants allowed into the country.b. adding to its stock of capital.c. printing more money.d. imposing tariffs and quotas on imported goods.
Education and training that improve the skill of the labor force are represented on the production possibilities curve by a(an)a. movement along the curve.b. inward shift of the curve.c. outward shift of the curve.d. movement toward the curve from an exterior point.
Along a production possibilities curve, an increase in the production of one good can be accomplished only bya. decreasing the production of another good.b. increasing the production of another good.c. holding constant the production of another good.d. producing at a point on a corner of the curve.
On a production possibilities curve, a change from economic inefficiency to economic efficiency is obtained bya. movement along the curve.b. movement from a point outside the curve to a point on the curve.c. movement from a point inside the curve to a point on the curve.d. a change in the slope of
If a farmer adds one pound of fertilizer per acre, the value of the resulting crops rises from $80 to $100 per acre. According to marginal analysis, the farmer should add fertilizer if it costs less thana. $12.50 per pound.b. $20 per pound.c. $80 per pound.d. $100 per pound.
On a production possibilities curve, the opportunity cost of good X in terms of good Y is represented bya. the distance to the curve from the vertical axis.b. the distance to the curve from the horizontal axis.c. the movement along the curve.d. all of the above.
A student who has one evening to prepare for two exams on the following day has the following two alternatives:The opportunity cost of receiving a 90 rather than an 80 on the accounting exam is represented by how many points on the economics exam?a. 15 pointsb. 80 pointsc. 90 pointsd. 10 points
Which of the following decisions must be made by all economies?a. How much to produce? When to produce? How much does it cost?b. What is the price? Who will produce it? Who will consume it?c. What to produce? How to produce it? For whom to produce?d. None of the above
T F Of all the points on the production possibilities curve, only one point represents an efficient division of labor.
Movement along the production possibilities curve shown in Exhibit 6 indicatesa. that labor is not equally productive or homogeneous.b. declining opportunity costs.c. all inputs are homogeneous.d. all of the above.
Which of the following moves from one point to another in Exhibit 6 would represent an increase in economic efficiency?a. Z to Wb. W to Yc. W to Xd. X to Y
If the economy represented in Exhibit 6 is operating at Point W,a. no tractor production must be forgone to produce more food in the current period.b. resources are not fully used.c. some tractor production must be forgone to produce more food in the current period.d. increased food production
The ________ problem concerns the division of output among society’s citizens. The ________ question asks exactly what goods are to be produced and in what quantities. The ________ question requires society to decide the resource mix used to produce goods.
Draw a production possibilities curve for a hypothetical economy producing capital goods and consumer goods. Suppose a major technological breakthrough occurs in the capital goods industry and the new technology is widely adopted only in this industry.Draw the new production possibilities curve.
Suppose, unfortunately, your mathematics and economics professors have decided to give tests two days from now and you can spend a total of only 12 hours studying for both exams. After some thought, you conclude that dividing your study time equally between each subject will give you an expected
Interpret the phrases “There is no such thing as a free lunch” and “A free lunch is possible” in terms of the production possibilities curve.
The following is a set of hypothetical production possibilities for a nation.a. Plot these production possibilities data. What is the opportunity cost of the first 2,000 automobiles produced? Between which points is the opportunity cost per thousand automobiles highest? Between which points is the
Which of the following decisions has the greater opportunity cost? Why?a. A decision to use an undeveloped lot in Tokyo’s financial district for an apartment building.b. A decision to use a square mile in the desert for a gas station.
Why are investment and economic growth so important?
Why would you spend an extra hour reading this text rather than going to a movie or sleeping?
Why do so few rock stars and movie stars go to college?
Which of the following pairs is the most likely to exhibit a direct relationship?a. The price of gasoline and the amount of gasoline that people purchaseb. Cholesterol levels and the likelihood of developing heart diseasec. Outdoor temperature and heating oil salesd. Annual income and weekly pawn
Which of the following pairs is the most likely to exhibit an inverse relationship?a. The amount of time you study and your grade point averageb. People’s annual income and their expenditure on personal computersc. Baseball players’ salaries and their batting averagesd. The price of a concert
Straight line AB in Exhibit A-8 shows thata. increasing the value of X reduces the value of Y.b. decreasing the value of X increases the value of Y.c. there is an inverse relationship between X and Y.d. all of the above are true.
Straight line CD in Exhibit A-7 shows thata. increasing the value of X will increase the value of Y.b. decreasing the value of X will decrease the value of Y.c. there is a direct relationship between X and Y.d. all of the above are true.
A change in a third variable not on either axis of a graph is illustrated witha. a horizontal or vertical line.b. a movement along a curve.c. a shift of a curve.d. a point of intersection.
In a graphic relationship, shifts in a curve are caused by a change ina. the slope of the curve.b. a factor not measured on the axes of the graph.c. one of the factors measured on either axis of the graph.d. any factor, whether measured on the axes of the graph or not.
A line that has a different slope at each point is aa. curve.b. straight line.c. vertical line.d. horizontal line.
Measured between two points on a curve, the ratio of the change in the variable on the vertical axis to the change in the variable on the horizontal axis is thea. axis.b. slope.c. dependent curve.d. independent curve.
The ratio of the vertical change (the rise or fall) to the horizontal change (the run) is called the ________.
A model (or theory):a. is a general statement about the causal relationship between variables based on facts.b. helps explain and predict the relationship between variables.c. when expressed as a downward (negatively) sloping graph implies an inverse relationship between the variables.d. all of the
Which of the following is a statement of normative economics?a. The minimum wage is good because it raises wages for the working poor.b. The minimum wage is supported by unions.c. The minimum wage reduces the number of jobs for less-skilled workers.d. The minimum wage encourages firms to substitute
Which of the following is a statement of positive economics?a. An unemployment rate greater than 8 percent is good because prices will fall.b. An unemployment rate of 7 percent is a serious problem.c. If the overall unemployment rate is 7 percent, unemployment rates among African Americans will
Which of the following is a statement of positive economics?a. The income tax system collects a lower percentage of the incomes of the poor.b. A reduction in tax rates of the rich makes the tax system more fair.c. Tax rates ought to be raised to finance health care.d. All of the above are primarily
An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, ceteris paribus. The phrase ceteris paribus means thata. other relevant factors like consumer incomes must be held constant.b. gasoline prices must first be adjusted for inflation.c. the theory is widely
Which of the following is not a resource?a. Landb. Laborc. Moneyd. Capital
T F The statement “It would be better to put up with price controls than to have continually higher medical care prices” is an example of normative economic analysis.
Which of the following is not a factor of production?a. A computer chipb. The service of a lawyerc. Dollarsd. All of the above are factors of production.e. None of the above
If a textbook price rises and then students reduce the quantity demanded of textbooks, an economic model can show a cause-and-effect relationship only if which of the following occurs?a. Students’ incomes fall.b. Tuition decreases.c. The number of students increases.d. All other factors are held
Select the normative statement that completes the following sentence: If the minimum wage is raised,a. cost per unit of output will rise.b. workers will gain their rightful share of total income.c. the rate of inflation will increase.d. profits will fall.
_______ applies an economywide perspective, which focuses on such issues as inflation, unemployment, and the growth rate of the economy.
“The government should collect higher taxes from the rich and use the additional revenues to provide greater benefits to the poor.” This statement is an illustration of aa. testable statement.b. basic principle of economics.c. statement of positive economics.d. statement of normative economics.
Which of the following is an example of a proposition from positive economics?a. If John Kerry had been elected president, taxpayers would have been treated more fairly than under George W. Bush.b. The average rate of inflation was higher during George W. Bush’s presidency than during Bill
Having won the Cold War, Congress cuts spending for the military, and then unemployment rises in the U.S. defense industry. Is there causation in this situation, or are we observing an association between events?
A model is defined as aa. value judgment of the relationship between variables.b. presentation of all relevant aspects of real-world events.c. simplified description of reality used to understand the way variables are related.d. data set adjusted for irrational actions of people.
Which of the following are microeconomic issues?Which are macroeconomic issues?a. How will an increase in the price of Coca-Cola affect the quantity of Pepsi-Cola sold?b. What will cause the nation’s inflation rate to fall?c. How does a quota on textile imports affect the textile industry?d. Does
Explain why both nations with high living standards and nations with low living standards face the problem of scarcity. If you won $1 million in a lottery, would you escape the scarcity problem?
Can you prove there is no person worth a trillion dollars?
Use the put-call parity to create at time 0 (a) a homemade put option that will expire at time 1, (b) a homemade call option that will expire at time 1, and (c) a homemade share. Node 4 Node 2 C = ? S =? Node 1 Node 5 So = $30 82-? Co=? C=? Node 3. S =? Node 6 C =? S =? C =? 1=0 1=1 1-2 Problem 1
Acall option expires 2 periods from now. Given the following information, are the options correctly priced at Nodes 2 and 3?S0$10 U.3 D.05 Exercise Price$11 R.10 C1$2 C1$.80 If not, what would one do to obtain a riskless profit? How large is the riskless profit?
A call option expires 2 periods from now. Given the following information, calculate the values of the stock at times 1 and 2, and the values of the option at times 0, 1, and 2.S0$30 U.25 D.10 R.10 Exercise price$33
Firm A and Firm B have different capital structures. Specifically, Firm A has a lower ratio of debt-to-equity than Firm B. In all other respects the two firms are equal;in particular, each firm generates net earnings of $1,000,000 per year. Firm A has issued 5,000 bonds and 100,000 shares of common
Two entrepreneurs, Kevin and Mike, operate shoe shining businesses on identical, opposite street corners in a major city. Although each of their annual incomes varies unpredictably due to the effects of weather, consumer preferences, and the disposable income of their customers, each young man’s
Consider the following numerical example in which we compare the equilibrium values of the expected rates of return for Security 19 and Security 84 in a two-factor model:The two quantities of risk for each of the securities, and the two market prices of risk, have the following values:β19,15
Kaitie has $60,000 to invest. Of this amount, she reserves $15,000 for risk-free assets, leaving $45,000 for allocation to risky securities. There are only three firms in the economy, each of which issues common stock. The following are the price per share, the total number of shares outstanding,
Let Portfolio P contain Security H and Security K, which are perfectly negatively correlated. Let the expected returns, the standard deviations, and the correlation coefficient for Securities H and K be as follows:EH.08 σH.04 EK.010 σK.08ρHK1.0 If Portfolio P is to be riskless, what must
If the expected rates of return for Security H and Security B are .09 and .15, respectively, calculate the values of the allocative proportions for a portfolio whose expected rate of return is 13%.
If EA.35, σA.1622, EB.35, σB.0436, and ρAB.668, what are the conditional expected return and standard deviation for Security A?
Suppose that in January the outcomes for the rates of return on Securities H and B are .09 and .15, respectively.(a) If an investor had formed his portfolio (worth a total of $1,000) by allocating 60% of his funds to Security H (XH.60) and 40% of his funds to Security B(XB.40), what is the rate
Consider the following joint probability distribution for the rates of return on Securities A and B: Possible Outcomes for A Probabilities for independent of the value of A 0 .30 .60 Possible .07 .1 .2 .1 .4 outcomes for .14 .1 0 .1 .2 .21 .1 .2 .1 .4 Probabilities for .3 .4 .3 independent of the
Consider the following data for Security A:PA,t-1$1,000 PA,t$1,100 DA,t$50(a) Calculate the rate of capital gain (or loss) over the interval from time t1 to time t.(b) Over that interval, what is the dividend yield?(c) What is the total rate of return on Security A over the interval from time
Suppose that the price of a security that is guaranteed to pay $2,000 per year is$19,000. Explain how an investor could purchase the security using funds borrowed from a bank (at a rate of .10 per year) and make a risk-free profit of $100 per year? If the price of the same security were $21,000,
Suppose that the interest rate on a government bond is .10, and that the market price of risk is equal to .05. In addition, suppose that, on average, the change in the rate of return on Security K from one year to the next is equal to 2.5 times the change in the rate of return on the S&P 500 over
The DR motor car company has 100 shares of stock outstanding. The net earnings of the company are $5,000 per year, continuing forever. The firm announces that one year from now the company will have an opportunity to pay $1,000 to begin the construction of a new plant. One year after construction
The new boat costs $5,000,000, and this amount must be paid out in full at time 0.After allowing for periodic maintenance, the net increase in the fleet’s annual earnings as a consequence of the new boat is equal to $800,000 starting at time 1.The rate of interest is 10%/year.Each year Captain Mo
Captain Mo runs a commercial fishing unit consisting of a fleet of 20 boats. His regular net earnings per year are $15,000,000, and his company has 1,000,000 shares outstanding.Suppose that he decides to purchase a newer, faster, and more productive fishing vessel. That is, his new boat can locate,
Heart College charges students a different fee for each year of their education.The tuition for the first year is $2,200. Tuitions for the second, third, and fourth years are $2,420, $2,662, and $2,928.2, respectively. Each tuition payment is due at the end of the year for which it is paid. How
The First Bank is currently paying 10% interest compounded annually on all deposits. Mr. Smith deposits $100 at t0. How much would he need to deposit one year later at t1 to have $275 in the bank the next year, at t2? By how much would he have to increase his deposit at t0 in order to have $275
With Good X plotted horizontally, and Good Y plotted vertically, the slope of Ms. Tall’s production possibilities frontier is 2:1 while the slope of Ms. Short’s production possibilities frontier is 3: 1. Who has a comparative advantage in terms of X and Y? Use a graph to explain your answer.
LickIt Candy Company produces two types of candy: pops and gum. The company has two plants, East Plant and West Plant. In West Plant, each machine can produce 3 units of gum/hr or 2 units of pops/hr. In East Plant, each machine can produce 5 units of gum/hr or 1 unit of pops/hr. What is the
Consider a market in which half of all firms are weak firms and the other half are strong. There is no way for an investor to distinguish between firms that are strong and firms that are weak. At the end of the present year, all firms will be liquidated.Each firm currently has an investment
One year ago a firm issued bonds. Today, the Fed lowered the rates of interest.Why might it have been beneficial for a firm to have included a callable feature in the bonds that it issued last year?
A firm has a reputation of highly volatile earnings. What incentive would an investor have to buy a convertible bond?
Ms. White and Ms. Black own farms next to each other. When the weather is good, each farm produces 2,000 tons of apples per year. When the weather is bad, each farm produces 1,000 tons per year. Ms. White is risk-averse. Ms. Black is willing to accept additional risk in exchange for a sufficient
Mr. Brown wants to increase his current consumption by $100. The current interest rate paid by a bank for deposits is 10%, and the bank is willing to lend at 15%.If Mr. Brown can guarantee that he will repay a loan that he might obtain from Mr. Green, is it economically efficient for Mr. Green to
ABC Furniture has been struggling to get customers into its store. In an attempt to increase sales, the firm has advertised that interest-free payments on furniture are not due until one year after the furniture is purchased. Under what condition would this be a mutually beneficial exchange between
Mr. Block’s potato farm produces between 500 and 800 tons of potatoes each year if there is bad weather, and between 700 and 1,000 tons each year if there is good weather. The farm has several investors who together own a bond that entitles them to receive 600 tons of potatoes each year. Today
'Will the euro displace the dollar as the world's leading currency over the next twenty years? Nah, the Chinese currency (the yuan) will.' Comment.
Finance is a major industry in the UK, accounting for some 5 per cent of its GDP. Does this characteristic make membership of the Eurozone rather more or rather less appealing?
Comment on the quote from Rudi Dornbusch at the head of this chapter.
This has led some to suspect that Europe wants to capture the market of currencies used for illegal transactions. What is your view of this motive?
The largest dollar banknote denomination is $100, the largest euro denomination is
In which ways can the existence of different national financial systems complicate monetary policy in the Eurozone? What kinds of measures could help the ECB?
'The Great Crisis of 2007-08 has exposed the high degree of coordination of central banks and the division of governments.' Evaluate and comment.
'The real reason why Eurozone countries can't agree on a single supervising agency is that each one wants to protect its own financial institutions.' Evaluate this view.
Banks can expand through either organic growth (winning new customers) or mergers and acquisitions. How does this distinction matter for the single European banking market?
What is the difference between a parallel and a vehicle currency?
What is the difference between regulation and supervision? What are the dangers of decentralized supervision in the Eurozone? Why is centralization resisted?
What is the phenomenon of gambling for resurrection? Why can it be lethal to financial markets?
Explain how the three functions of money apply at the international level.
How do we know that bond markets have been unified in the Eurozone upon the launch of the euro? Why has this not happened for stock markets?
List the reasons why banks are subject to increasing returns to scale. Why do fixed switching costs matter for competition among banks?
What is the phenomenon of information asymmetry? How can it explain why banks refuse credit to some customers? How can it contribute to systemic risk in financial markets?
What is depth in financial markets? What is breadth? What are network externalities?
As part of its decision on whether to join the Eurozone, the UK Treasury has studied the Stability and Growth Pact and states: Where debt is low and there is a high degree of long-term fiscal sustainability, the case for adopting a tighter fiscal stance to allow room for governments to use fiscal
With the Stability and Growth Pact and its limits on fiscal policy, what is left for govern- ments to do in the monetary union?
Some countries argue that the monetary union needs a common fiscal policy to match the common monetary policy. Evaluate this view.
When the Stability and Growth Pact was being negotiated, some countries wanted it to be a fully automatic procedure, others wanted decisions to be interpreted by the Finance Ministers. Why is this distinction important? How does the agreed-upon pact reflect this difference of opinions?
Imagine that a Eurozone member country is running budget deficits and accumulating a large public debt. What scenario can you envision when financial markets refuse to further finance the deficits? In your story, consider the reaction of domestic citizens as well as that of the Commission and

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The Economics Of European Integration 3rd Edition Richard E. Baldwin, Charles Wyplosz - Solutions

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